How to secure Private MOney or HML for Auction Properties
Member since 2021 · 13 posts · 6 votes
How to secure Private MOney or HML for Auction Properties
Most Popular Reply
Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes
3wWhich auction in Ohio, Jodi?
It can be done, what you are talking about. I sort of set it up. So what I did to prove the concept - that you can buy for 20% - 50% off the fair market value - was to partner with people. Small purchases, 20k - 50k. My team identifies undervalued assets, The client puts up the money and holds deed, and then my team does all boots on the ground and liquidates. No holding costs. We split the profit 50/50 client did nothing. And I got through a dozen projects like that, all with profit. Longest deal was 6 months, shortest was three months. Much, much safer than a fix n flip. People were actually getting a return on their money and not just paying a loan note every month. Then with the track record, experience, and knowledge of the process I lined up a private money resource that closes on 90% of the deal in return for a fixed rate of return. So now my buying power has increased.
It's not all rose pedals either. There are risks in buying sight unseen and just based off the neighborhood, schools, parking, etc. You certainly are not bidding on the interior that is for sure. I've been stuck with a 3k utility lien before, been hit with a 12k underground sewer issue too. Still never lost money. My team knows the market very, very well and on my team as well is an agent/investor and a wholesaler with a list of 500+ local investors.
I mean, if I had real capital, the deals I have seen sitting at auction over the last two years is mind blowing. But you have to know WHAT you are bidding on. I can't be more clear than that. You go in there with general knowledge, you will get slaughtered. You really need block by block knowledge of the market, its amenities, schools, business district, Colleges/Universities, etc. You have to know it all to win.
A few months ago, I saw a 12 unit building with a commercial space on the bottom go for 77k. We didn't buy because our lane has been the 1 - 4 unit assets, that's who we sell to. But wow, my guy told me that it would need about 200k in work. But after that, maybe 450k value. The 12 one bedrooms would be 1600 each, and the commercial was 2500. If you can ge through that project - all the rehab, all the labor, materials, time, money, set-backs, add-ons, permits, zoning. I can only imagine. But if you make it through, the mortgage would be about 4500/month, a sell-out is 21,600/month. I hope to be able to take on projects like this soon.
I see duplexes and triplexes sell all the time for under 60k. I bought a duplex a few months ago for 26k, sold it for 42.5k immediately. But that is a winner too on cashflow, especially starting at 26k.
And last month we bought a nice 5/2 house in a C/C+ area for 90k. We already have a soft offer for 140k. We won't be able to get in for another month or so.
If you can identify the houses with the built in equity, not so easy to do in an auction format. Everyone races to look up comps, pics while bidding is going on. It's easy to make a mistake. High pressure atmosphere. And some bidders have very deep pockets, they are just never out on anything so sometimes you have to wait until they win a few and then it loosens up. Some months heavy bidders are not there and it is more open. Some months there's 50 - 100 cancellations. Some months it is mostly foreclosures and the bank is there bidding up to their payoff - which could be high if it is a fairly new asset. But these are the other great equity spots. The situation is a fresh foreclosure on something new after like 5 years in the home. For instance, in 2018 someone pays 240k for a nice 4/2.5 bath house. They lay down 10% (24k) and finance the 216k. Fast forward 7 years and the house is getting auctioned off. There will be a low starting bid, but the bank will be there and bid all the way up to their payoff essentially not letting anyone get it for less than what they are owed. But once they hit that, they are done. So if after seven years the house is worth 375k now. Their payoff is 216k. So I can get this house for 221k (has to be 5k increments after 100k). I now have 150k in unrealized equity that is mine. I saw that situation like 4 - 5 times this year, have not been able to take advantage yet. It requires bidding 200k, maybe 300k. Not there yet. But I see the opportunity.
8 Replies
- 1moAJ ExnerPro MemberLender · Springfield, MO · Member since 2023 · 651 posts · 314 votes
Hey Jodi-Ann,
I would walk through the deal with the lender first. Plenty of HMLs could do 14 days post-auction, I would work with a group that could maybe do some preliminary underwriting and help you get a pre-qualification letter and then get ready to lock in once you win the auction and get it under contract.
Especially because there can be things like minimum values and ARV constraints that you will want to have before you get into it
Is this your first auction deal?
- Member since 2021 · 13 posts · 6 votes1mo
Quote from @AJ Exner:
Hey Jodi-Ann,
I would walk through the deal with the lender first. Plenty of HMLs could do 14 days post-auction, I would work with a group that could maybe do some preliminary underwriting and help you get a pre-qualification letter and then get ready to lock in once you win the auction and get it under contract.
Especially because there can be things like minimum values and ARV constraints that you will want to have before you get into it
Is this your first auction deal?
No its not my first auction purchase. I have purchased several auction properties over the years but they were cash which has its limits. So I wanted to know if there is a better option.
- 1moAJ ExnerPro MemberLender · Springfield, MO · Member since 2023 · 651 posts · 314 votes
@Jodi-Ann Birch that's awesome, utilizing debt well can help scale if you are used to the process.
Biggest thing is not only making sure that the lender can close in that time, but also that they provide the flexibility in case the deal is lower (you get a better deal then you think) or if the deal is going to require more rehab than anticipated.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1moCan you get interior access? That will be a determinant. There are some who will lend 40-50% of acquisition but not more due to the unknowns. Best bet is to get a private lender who will take on the risk but the rate and points will most likely be very high
7e investments53 Reviews - Englewood, NJ · Member since 2018 · 355 posts · 60 votes1mo
Since you've bought at auction before with cash, the main thing that changes with 14 days to close in Ohio is speed of underwriting, not the loan product. A few things that have helped people I know bid with borrowed money: get fully underwritten with the lender BEFORE the sale (credit, entity docs, proof of liquidity, track record) so the only open item after you win is the property file. Ask each lender two blunt questions up front: can you fund without interior access/appraisal, and what is your actual doc-to-wire timeline, not the marketing one. Many auction-friendly hard money lenders will do a drive-by BPO or desktop val and lend on purchase price rather than value, so plan on 30-50% of your own cash in the deal plus rehab holdback.
Also check the sheriff sale terms for your county - some Ohio counties want 10% deposit day-of and the balance in 30 days, and confirm whether the confirmation of sale timeline extends your window (it often does, which takes pressure off).
Practical backstop: line up a private lender (individual, not a fund) as plan B with a signed term sheet and proof of funds letter in your name before the auction. Cost more in rate/points, but it beats losing your deposit. And title - order an O&E/title search before bidding so a junior lien or an unpaid tax cert doesn't blow up the funding at day 12.
- 3wJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Igor Ganapolsky:
Since you've bought at auction before with cash, the main thing that changes with 14 days to close in Ohio is speed of underwriting, not the loan product. A few things that have helped people I know bid with borrowed money: get fully underwritten with the lender BEFORE the sale (credit, entity docs, proof of liquidity, track record) so the only open item after you win is the property file. Ask each lender two blunt questions up front: can you fund without interior access/appraisal, and what is your actual doc-to-wire timeline, not the marketing one. Many auction-friendly hard money lenders will do a drive-by BPO or desktop val and lend on purchase price rather than value, so plan on 30-50% of your own cash in the deal plus rehab holdback.
Also check the sheriff sale terms for your county - some Ohio counties want 10% deposit day-of and the balance in 30 days, and confirm whether the confirmation of sale timeline extends your window (it often does, which takes pressure off).
Practical backstop: line up a private lender (individual, not a fund) as plan B with a signed term sheet and proof of funds letter in your name before the auction. Cost more in rate/points, but it beats losing your deposit. And title - order an O&E/title search before bidding so a junior lien or an unpaid tax cert doesn't blow up the funding at day 12.
Ohio is one of the easier states to do this with the time lines.. and small deposits..
- Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes3w
Which auction in Ohio, Jodi?
It can be done, what you are talking about. I sort of set it up. So what I did to prove the concept - that you can buy for 20% - 50% off the fair market value - was to partner with people. Small purchases, 20k - 50k. My team identifies undervalued assets, The client puts up the money and holds deed, and then my team does all boots on the ground and liquidates. No holding costs. We split the profit 50/50 client did nothing. And I got through a dozen projects like that, all with profit. Longest deal was 6 months, shortest was three months. Much, much safer than a fix n flip. People were actually getting a return on their money and not just paying a loan note every month. Then with the track record, experience, and knowledge of the process I lined up a private money resource that closes on 90% of the deal in return for a fixed rate of return. So now my buying power has increased.
It's not all rose pedals either. There are risks in buying sight unseen and just based off the neighborhood, schools, parking, etc. You certainly are not bidding on the interior that is for sure. I've been stuck with a 3k utility lien before, been hit with a 12k underground sewer issue too. Still never lost money. My team knows the market very, very well and on my team as well is an agent/investor and a wholesaler with a list of 500+ local investors.
I mean, if I had real capital, the deals I have seen sitting at auction over the last two years is mind blowing. But you have to know WHAT you are bidding on. I can't be more clear than that. You go in there with general knowledge, you will get slaughtered. You really need block by block knowledge of the market, its amenities, schools, business district, Colleges/Universities, etc. You have to know it all to win.
A few months ago, I saw a 12 unit building with a commercial space on the bottom go for 77k. We didn't buy because our lane has been the 1 - 4 unit assets, that's who we sell to. But wow, my guy told me that it would need about 200k in work. But after that, maybe 450k value. The 12 one bedrooms would be 1600 each, and the commercial was 2500. If you can ge through that project - all the rehab, all the labor, materials, time, money, set-backs, add-ons, permits, zoning. I can only imagine. But if you make it through, the mortgage would be about 4500/month, a sell-out is 21,600/month. I hope to be able to take on projects like this soon.
I see duplexes and triplexes sell all the time for under 60k. I bought a duplex a few months ago for 26k, sold it for 42.5k immediately. But that is a winner too on cashflow, especially starting at 26k.
And last month we bought a nice 5/2 house in a C/C+ area for 90k. We already have a soft offer for 140k. We won't be able to get in for another month or so.
If you can identify the houses with the built in equity, not so easy to do in an auction format. Everyone races to look up comps, pics while bidding is going on. It's easy to make a mistake. High pressure atmosphere. And some bidders have very deep pockets, they are just never out on anything so sometimes you have to wait until they win a few and then it loosens up. Some months heavy bidders are not there and it is more open. Some months there's 50 - 100 cancellations. Some months it is mostly foreclosures and the bank is there bidding up to their payoff - which could be high if it is a fairly new asset. But these are the other great equity spots. The situation is a fresh foreclosure on something new after like 5 years in the home. For instance, in 2018 someone pays 240k for a nice 4/2.5 bath house. They lay down 10% (24k) and finance the 216k. Fast forward 7 years and the house is getting auctioned off. There will be a low starting bid, but the bank will be there and bid all the way up to their payoff essentially not letting anyone get it for less than what they are owed. But once they hit that, they are done. So if after seven years the house is worth 375k now. Their payoff is 216k. So I can get this house for 221k (has to be 5k increments after 100k). I now have 150k in unrealized equity that is mine. I saw that situation like 4 - 5 times this year, have not been able to take advantage yet. It requires bidding 200k, maybe 300k. Not there yet. But I see the opportunity.
- 3wElizabeth LawrenceBusiness MemberLender · OH · Member since 2022 · 18 posts · 7 votes
We have lending options available for auction properties that don't allow for interior inspection after your offer is accepted, but we would need interior and exterior photos, do you have this? This is to protect you and the lender to make sure that your rehab budget is sufficient for the project you are looking at. Would love to review the deal with you!
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